HUNTERSVILLE, N.C.—American Tire Distributors Holdings Inc. (ATD) has agreed to buy Hercules Tire & Rubber Co. for about $310 million, subject to certain customary pre-closing adjustments.
The combination of ATD and Findlay, Ohio-based Hercules will enlarge ATD's already expansive distribution footprint to more than 120 warehouse distribution centers in the U.S. and 30 in Canada.
ATD will report close to $3.5 billion in sales this year, and Hercules' annual sales are estimated to be in excess of $500 million. The deal was expected to close Jan. 31 at the latest, one day after Tire Business' press deadline.
ATD will carry out the purchase through an indirect wholly owned subsidiary, ATD Merger Sub II L.L.C., the Huntersville-based wholesaler said in an 8K filing with the Securities and Exchange Commission.
ATD cited several reasons for its interest in Hercules, including a strong management team, the recognized value of the Hercules brand—both the company and tire—and its position in key markets, especially in Canada, where ATD is growing rapidly.
“They have a great management team,” said Ron Sinclair, ATD's senior vice president, marketing, “which is reflected in the fact they've been growing steadily the past five years in a flat or even shrinking market.”
ATD President and CEO William Berry called Hercules a “well-run company with an outstanding reputation in the industry. Joining forces with the Hercules team is a very positive step for American Tire Distributors.”
Hercules was founded in 1952 as a cooperative by a group of independent tire dealers. It has been owned since 2005 by FdG Associates L.P., a New York City-based private equity firm.
In a prepared statement, FdG said: “The merger of ATD and Hercules offers tremendous new growth opportunities to the combined company and will enable them to serve their customers even more effectively across all of their markets.”
FdG called ATD “the premier replacement tire distribution platform in North America,” and stressed that it believes Hercules has unique assets that will enhance ATD's portfolio.
The investment company also said it is “very proud of what we've accomplished together. We are pleased with this outcome for our management partners and our investors.”
There are 10 direct overlaps in the firms' distribution footprints—eight of Hercules' 20 U.S. warehouses and two in Canada are located in cities where ATD also is present—but Mr. Sinclair said it's too early to tell how much, if any, conflict this might represent.
“We'll look at each case individually” before deciding whether to make changes, he said, noting that ATD has multiple warehouses in a number of metro markets.
“In the end,” he said, “it's all about serving the customer and growing the business.”
Mr. Sinclair said ATD management expects ATD and Hercules to learn from each other and take advantage of each others' strengths. He called the Hercules tire brand a “significant asset,” which is a “strong Tier 3 value brand” that complements ATD's proprietary brands.
In its SEC filing, ATD said the final purchase price could be up to $10 million higher, based on “additional consideration contingent upon the occurrence of certain performance-related and other post-closing events. The closing purchase price also is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
ATD estimates its share of the U.S. and Canadian replacement passenger and light truck tire markets at approximately 10 and 9 percent, respectively, according to its third quarter 10Q filing with the SEC,
Hercules operates four divisions: Hercules Tire USA; Hercules Tire Canada; Tire Dealer's Warehouse (TDW); and Hercules Tire International (which it calls the largest independent tire exporter in North America, with the Hercules and Ironman brands).
Besides the distribution centers in North America, Hercules operates a 250,000-sq.-ft. warehouse in northern China.
This is ATD's fifth acquisition in the past 12 months. Others include:
c Kipling Tire Co. Ltd., Etobicoke, Ontario. January 2014. Financial terms not disclosed.
c Wholesale Tire Distributors Inc., Vaughan, Ontario, two distribution centers in southern Ontario. December 2013. Terms not disclosed.
c Tire Distributors Inc., Middle River, Md. August 2013. Financial terms not disclosed.
c Regional Tire Distributors Inc., Burlington, Ontario, five distribution centers in Ontario and four in the Atlantic Provinces; May 2013; $62.5 million.
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